Top picking

There's no shortage of bearish calls out there. There's even comparisons of the market to 1929 based upon a chart overlay. That's a joke. Yes, there are some signs of froth namely the IPO market - the Candy Crush IPO seems ridiculous.  I read a report that said about 75% of announced IPOs in the US were money losing companies which is about the same percentage as early 2000 near the peak of the tech bubble. I suspect the social media and cloud computing space  is largely responsible for a lot of this froth. These types of studies are worrying people - even Cramer is concerned! However, there's no comparison between where are now vs early 2000.  Economically speaking, the US economy was running at full steam with record low unemployment in early 2000. The Fed was concerned about overheating and was tightening rates to the point where the yield curve was inverted;  a condition that always precedes a recession and major bear market. Optimism in general was palpable with consumer confidence at record highs. There was also this notion that we were in some sort of new economic paradigm thanks to the internet and the market as a whole was historically very overvalued on pretty much every metric you can think of. We are nowhere close to the conditions that existed in early 2000 or the start of other major bear markets. Monetary conditions are still very accommodating even with tapering. The economy is expanding but only modestly, unemployment is coming down but is still at unwanted levels and widespread optimism in general is non-existent - consumer confidence is still well below 100.

Another thing you will tend to see near the peak of a bull market is how most people embrace or find reasons to justify what appears to be froth as opposed to looking at any sign of optimism or froth as a contrarian reason to be worried as is the case today and in recent years as well. Take Cramer for example. In February 2000 he posted an infamous article about how you had to own  these 10 "new world "  names  (high flying  internet stocks) if you wanted to make money in the market. He was not alone. I remember how in 2000 practically every equity mutual fund in Canada had Nortel as a top holding. At its peak Nortel made up a ridiculous 1/3 of the TSX. You see, retail and many of the "pros" embraced the market and eschewed logic. They made justifications for the nose bleed valuations (the internet will spawn a new era of massive growth and so traditional valuation metrics are not applicable). Can you honestly say that this sort of sentiment prevails today? Hardly. This time around Cramer is siding with the bears pointing out the froth in the IPO market instead of embracing it  and other skeptics are not in short supply. Sure, there's more optimism out there vs a couple of years ago but that's only natural after a bull run like this. And let's face it, you, me and everyone else still has 2008 fresh in our mind and worry of a repeat anytime there's a problem. A lot of people out there are also still convinced that the this bull market is "artificial" in that it's all due to the fed.

So, the bottom line is that despite the signs of froth out there (specifically the IPO market),  there's no comparison to 2000 or 1929. The unwinding of this froth could lead to a correction but unlikely the death of the bull market. The fact that's there's so many top watchers still out there suggests to me that there's still a LT wall of worry out there. I think it's also indicative of sour grapes. A lot of pundits out there were reluctant to embrace the bull market and largely missed out on it and so now it seems they want to make up for it by nailing the top. Too fucking bad.

As I've been saying for some time, the correction when it comes will be elusive. Many people, including LT bulls like me, have been on guard for it for several months and all we've seen are rather minor dips. These kind of situations are rather frustrating but I still think the best course of action is maintain your positions in high conviction names and keep your standards higher than average when it comes to adding new longs while maintaining a healthy cash reserve. I'm not outright hedging with puts/shorts at this time, but you do whatever you gotta do.